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I am not trying to calculate the theoretical minimum costs but the actual costs. Nobody cares if a transaction could theoretically cost $0.30 if right now someo

by danbruc 12y ago

I am not trying to calculate the theoretical minimum costs but the actual costs. Nobody cares if a transaction could theoretically cost $0.30 if right now someone pays those $10.00 for each and every of the 100,000 transaction on every single day. If the Bitcoin network at some point in the future processes 3 million transactions per day fine, but it does not right now and it honestly does not like this is going to happen anytime soon. The transaction volume is at best stable since more than one year and to me it actually looks more like it is slightly declining. And even if you get your electricity for free there is still the other half of the costs, the largest part being hardware. It doesn't really matter for me if it is $10 or $5 per transaction, it is not cheap. And even those theoretical $0.30 are still a lot. Real micro payments could be a killer application. Pay $0.05 or $0.10 to read a news article. If one hour of your time is worth $50 that is the equivalent 3.6 respectively 7.2 seconds of your time. Thinking a couple of seconds whether you should buy the article or not makes almost no sense at that price level. Just charge those few cents. But $0.30 per transaction is like a factor 100 to expensive for this. And with expensive by nature I meant that the security of the system depends on that. The Bitcoin network will never be able to spend less money on running the system because that is what it is protected by, the money spend on hardware and electricity. You can't even keep using your hardware for a long time because technological advances will make an attack cheaper and cheaper and therefore lower the security level your old hardware can provide. The Bitcoin network is doomed to throw money out of the window, hundreds of millions every year for processing not even enough transaction to make a Raspberry Pi sweat. To me this seems a pretty hefty tax for being distributed and trustless, especially because no one cares about those features.

mrb 12y ago
"The transaction volume is at best stable since more than one year and to me it actually looks more like it is slightly declining" No, it increased from 60k to 100k over the last year: https://blockchain.info/charts/n-transactions?timespan=1year&showDataPoints=false&daysAverageString=7&show_header=true&scale=0&address= https://blockchain.info/charts/n-transactions?timespan=1year... In fact it grew 10x between May 2012 and May 2015, from 10k to 100k tx/day, so assuming the same growth rate we would hit 1 million tx/day in mid-2018. But somehow you think they are... declining? "And even those theoretical $0.30 are still a lot" Not compared to competing systems. It beats PayPal's fees of 2.9% + $0.30. It beats the worldwide average remittance fees of ~10% (can you stop and think for a second? 10%!). It beats the wire transfer fees I pay to send money to my family in France (about $35). And so on. I actually agree with you that Bitcoin isn't particularly well suited to micro-transactions, but its advantages really shine with regular transactions, and that's where it is growing.
- danbruc 12y ago
  I was referring to transaction volume in Dollars which seems more relevant to me. If Bitcoin is adopted and people use it more to buy stuff or transfer money the Dollar volume should go up because Dollar prices are more or less stable. But it is an interesting question why the number of transactions keeps rising.
CyberDildonics 12y ago
> The Bitcoin network is doomed to throw money out of the window, hundreds of millions every year for processing not even enough transaction to make a Raspberry Pi sweat. The fundamental flaw is that you are correlating the hashing power with the number of transactions that can processed, but the two are unrelated. If there were 100MB blocks the hashing power could stay the same yet the number of transactions would be 100 times as large. One of the reasons bitcoin works so well is that this scenario will be phased in gradually. By the time transaction volume is 100 times what it is now, the electricity cost per transaction will be in line with the cost of a transaction, and the mining bonus per block will be less and less necessary and become a smaller part of the profit from mining. Electricity cost will actually drop in price significantly due to solar, but again this doesn't even matter as the system of incentives drives mining. As was mentioned before (not by me) this is extremely misleading at best (and really outright untrue). Mining costs adjust to the amount of money miners are making. The block rewards are supposed to be a temporary measure to gradually introduce more supply while being an extra reward to the miners as the network gets started. If mining wasn't profitable, miners wouldn't do it. You could make an argument for transaction fees eventually being too expensive for typical transactions, but to say that mining is some inherent cost is ridiculous, since it adjusts to the amount of money that can be made by mining. Crypto currencies are difficult for people to understand, because really it isn't common for people to have a good handle on proper incentive structures to drive people's behavior.
- danbruc 12y ago
  My formulation was admittedly not very good but I am not confusing those things. The first part, being doomed to throw money out of the window, was intended to mean that Bitcoin can never profit from lower electricity costs or more efficient hardware. Whenever hardware becomes more efficient or electricity cheaper the Bitcoin network has to increase the hash rate or will become less secure. On the other hand a normal bank for example can reduce their costs whenever hardware becomes more efficient or electricity cheaper. The second part, hundreds of millions Dollars for only a few transactions, sounds probably even more misleading. You are of course correct, you can at least technically process an almost arbitrary number of transactions no matter what the hash rate of the Bitcoin network is. But there is a catch. You can not process transactions worth millions of dollars with a Bitcoin network consuming electricity worth say $100,000 per year. You surly can try but it will only be a matter of time until someone will destroy it for the lulz. Or imagine Bitcoin really taking of processing transactions worth billions and billions of Dollars every day. What do you think how much would an hostile group or government be willing to spend to burn your system to ashes? Right now it sounds quite ridiculous because the transaction volume is so small that it is really not worth it but imagine for a moment Bitcoin becoming Visa. A rich nation or a nation sponsored terrorist organization willing to spend 10 million, 100 million, maybe even a billion Dollars to bring the system down sounds not absolutely unimaginable to me. And the amount of money an attacker is willing to spend sets the lower limit of money the Bitcoin network has to burn every year to remain secure. The important takeaway is that for Bitcoin burning money and security are the same thing, whatever makes mining cheaper makes Bitcoin weaker. Especially it is not the hash rate that makes Bitcoin secure, it is the amount of money it costs to achieve this hash rate. And also mining incentives and so on are really secondary, it is the amount of money an attacker with incentives external to the Bitcoin network is willing to spend on an attack that determines how much money needs to be burned to keep the system secure. So the only way to achieve lower transaction costs is to increase the number of transactions processed which may or may not increase the amount of money an attacker is willing to invest.

by danbruc 12y ago

mrb 12y ago

"The transaction volume is at best stable since more than one year and to me it actually looks more like it is slightly declining" No, it increased from 60k to 100k over the last year: https://blockchain.info/charts/n-transactions?timespan=1year&showDataPoints=false&daysAverageString=7&show_header=true&scale=0&address= https://blockchain.info/charts/n-transactions?timespan=1year... In fact it grew 10x between May 2012 and May 2015, from 10k to 100k tx/day, so assuming the same growth rate we would hit 1 million tx/day in mid-2018. But somehow you think they are... declining? "And even those theoretical $0.30 are still a lot" Not compared to competing systems. It beats PayPal's fees of 2.9% + $0.30. It beats the worldwide average remittance fees of ~10% (can you stop and think for a second? 10%!). It beats the wire transfer fees I pay to send money to my family in France (about $35). And so on. I actually agree with you that Bitcoin isn't particularly well suited to micro-transactions, but its advantages really shine with regular transactions, and that's where it is growing.

danbruc 12y ago
I was referring to transaction volume in Dollars which seems more relevant to me. If Bitcoin is adopted and people use it more to buy stuff or transfer money the Dollar volume should go up because Dollar prices are more or less stable. But it is an interesting question why the number of transactions keeps rising.

CyberDildonics 12y ago

> The Bitcoin network is doomed to throw money out of the window, hundreds of millions every year for processing not even enough transaction to make a Raspberry Pi sweat. The fundamental flaw is that you are correlating the hashing power with the number of transactions that can processed, but the two are unrelated. If there were 100MB blocks the hashing power could stay the same yet the number of transactions would be 100 times as large. One of the reasons bitcoin works so well is that this scenario will be phased in gradually. By the time transaction volume is 100 times what it is now, the electricity cost per transaction will be in line with the cost of a transaction, and the mining bonus per block will be less and less necessary and become a smaller part of the profit from mining. Electricity cost will actually drop in price significantly due to solar, but again this doesn't even matter as the system of incentives drives mining. As was mentioned before (not by me) this is extremely misleading at best (and really outright untrue). Mining costs adjust to the amount of money miners are making. The block rewards are supposed to be a temporary measure to gradually introduce more supply while being an extra reward to the miners as the network gets started. If mining wasn't profitable, miners wouldn't do it. You could make an argument for transaction fees eventually being too expensive for typical transactions, but to say that mining is some inherent cost is ridiculous, since it adjusts to the amount of money that can be made by mining. Crypto currencies are difficult for people to understand, because really it isn't common for people to have a good handle on proper incentive structures to drive people's behavior.

danbruc 12y ago
My formulation was admittedly not very good but I am not confusing those things. The first part, being doomed to throw money out of the window, was intended to mean that Bitcoin can never profit from lower electricity costs or more efficient hardware. Whenever hardware becomes more efficient or electricity cheaper the Bitcoin network has to increase the hash rate or will become less secure. On the other hand a normal bank for example can reduce their costs whenever hardware becomes more efficient or electricity cheaper. The second part, hundreds of millions Dollars for only a few transactions, sounds probably even more misleading. You are of course correct, you can at least technically process an almost arbitrary number of transactions no matter what the hash rate of the Bitcoin network is. But there is a catch. You can not process transactions worth millions of dollars with a Bitcoin network consuming electricity worth say $100,000 per year. You surly can try but it will only be a matter of time until someone will destroy it for the lulz. Or imagine Bitcoin really taking of processing transactions worth billions and billions of Dollars every day. What do you think how much would an hostile group or government be willing to spend to burn your system to ashes? Right now it sounds quite ridiculous because the transaction volume is so small that it is really not worth it but imagine for a moment Bitcoin becoming Visa. A rich nation or a nation sponsored terrorist organization willing to spend 10 million, 100 million, maybe even a billion Dollars to bring the system down sounds not absolutely unimaginable to me. And the amount of money an attacker is willing to spend sets the lower limit of money the Bitcoin network has to burn every year to remain secure. The important takeaway is that for Bitcoin burning money and security are the same thing, whatever makes mining cheaper makes Bitcoin weaker. Especially it is not the hash rate that makes Bitcoin secure, it is the amount of money it costs to achieve this hash rate. And also mining incentives and so on are really secondary, it is the amount of money an attacker with incentives external to the Bitcoin network is willing to spend on an attack that determines how much money needs to be burned to keep the system secure. So the only way to achieve lower transaction costs is to increase the number of transactions processed which may or may not increase the amount of money an attacker is willing to invest.